What's Driving Gold's Relentless Rally to Record Highs?
The ancient asset of gold is experiencing a remarkable resurgence, attracting a diverse array of investors and defying traditional market expectations. In a surprising turn, both bad news and good news seem to be fueling its ascent, creating a unique dynamic in global financial markets.
Geopolitical Tensions and Fiscal Concerns
Gold has traditionally thrived during periods of uncertainty, and current geopolitical developments are providing ample fuel for its rally. As former President Donald Trump's threats against America's European allies intensified earlier this year, the price of the yellow metal surged dramatically. Interestingly, even when those threats subsided, gold continued its upward trajectory, demonstrating its complex relationship with global events.
The asset has become central to what market analysts call the "debasement trade," where investors concerned about fiscal splurges, fraught geopolitics, and the erosion of institutional norms are moving away from government bonds and dollars. Instead, they're turning to one of humanity's oldest stores of value for protection against uncertainty.
Breaking Through All Expectations
Gold's performance this year has been nothing short of extraordinary. The precious metal has already gained more than 17% in 2026, soaring above $5,000 per ounce for the first time in history on January 26th. Remarkably, we're not even through February yet, and gold has already surpassed many analysts' year-end forecasts for 2026.
The relationship between gold and stock markets has become particularly intriguing. Since the revelation of former President Trump's global tariff wall on April 2nd last year, the S&P 500 index has dropped by more than 1% on 27 separate occasions. During those market sell-offs, gold prices rose by an average of 0.6% per day. But here's the twist: gold also climbs when stocks climb. On the 24 days when the S&P 500 jumped by more than 1%, gold still managed to increase by 0.2%.
New Investors Join the Gold Rush
While central banks in emerging markets, particularly China, have fueled much of the recent rally by rediscovering their love for physical gold, a new wave of investors is entering the market through different channels. Gold exchange-traded funds (ETFs) are experiencing unprecedented growth, suggesting that a fresh generation of investors is being drawn to the metal—not just for safety, but for returns and portfolio diversification.
Global gold ETFs now hold more than 4,000 tonnes of the precious metal, representing a staggering increase of 25% in 2025 alone. This massive accumulation is now worth over $650 billion, creating a substantial new force in the gold market.
Asian Investors Lead the Charge
Asian markets are at the forefront of this gold investment revolution. Over the past two years, holdings of gold by Asia-based ETFs have more than tripled to 460 tonnes. In the last quarter of 2025, the Huaan Yifu Gold ETF, a Chinese fund, recorded the second-largest inflows of any gold ETF worldwide, trailing only the flagship fund of American asset management giant State Street.
Major funds in Japan and South Korea have similarly reported substantial increases in their gold allocations. The trend is so pronounced that Cheah Cheng Hye, billionaire co-founder of Value Partners (one of Asia's largest asset managers), recently revealed he now invests 25% of his wealth in gold, up from just 15% a year ago.
Institutional Doors Begin to Open
The potential for sustained institutional investment in gold is expanding significantly. India's National Pension System, an umbrella organization for defined-contribution pension schemes, has permitted funds to allocate up to 1% of their collective $175 billion in assets to precious-metal ETFs. Similarly, a pilot program launched in early 2025 for the Chinese insurance industry allowed ten firms to invest the same percentage of their assets in gold.
This institutional interest represents a fundamental shift, as traditional "smart money" has typically turned up its nose at precious metals. Gold presents unique challenges for conventional valuation methods since it produces no cash flows and cannot be priced by discounting expected future profits like stocks or bonds. Assets whose entire value depends on what someone else might pay in the future naturally concern prudent portfolio managers.
The Compelling Case for Gold Allocation
Despite these traditional reservations, gold's performance characteristics are becoming increasingly difficult to ignore. An asset that provides stability during market panics while appreciating steadily during calmer periods offers unique portfolio benefits. Analysis by financial-data provider MSCI suggests that an investor with a conventional 60% equities and 40% bonds portfolio could have raised annual returns by four percentage points last year by switching half of those bonds into gold—all while adding minimal volatility to their portfolio.
The most remarkable aspect of gold's current rally is how much room remains for growth. In Western institutional portfolios, which have traditionally ignored the metal, allocations remain minuscule. According to Goldman Sachs, gold accounts for just 0.17% of Americans' combined wealth held in stocks and bonds. Yet each 0.01-percentage-point increase in that share raises the metal's price by approximately 1.4%.
This mathematical reality suggests that gold doesn't need American investors to match Asian levels of enthusiasm to continue its climb. Even modest increases in allocation from Western institutions could provide significant upward pressure on prices, creating a self-reinforcing cycle of investment and appreciation that could sustain gold's remarkable rally well into the future.
